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Application of spectral and ARIMA analysis to combined‐ratio patterns

Emilio C. Venezian (Rutgers University, Piscataway, New Jersey, USA)
Chao‐Chun Leng (Towers Perrin, Philadelphia, Pennsylvania, USA)

Journal of Risk Finance

ISSN: 1526-5943

Article publication date: 1 March 2006

592

Abstract

Purpose

This paper seeks to use spectral analysis as an alternative method to analyze whether underwriting results exhibit a cyclical behavior for the property‐liability insurance industry and by lines of business. In addition, aims to use the AR(2) process to obtain information about cyclical behavior and cycle lengths. Then, the results from the two methods are to be closely examined and compared.

Design/methodology/approach

Spectral analysis and ARIMA are used to obtain cycle lengths, then to compare them to check the consistency of the two methods.

Findings

The AR(2) produced more significant results than spectral analysis.

Originality/value

This is the first article in insurance using significant levels for spectral analysis to decide appropriate cycle lengths. In addition, the consideration of multiple comparisons to get critical values for significance levels reduces false positive and produces more reliable results.

Keywords

Citation

Venezian, E.C. and Leng, C. (2006), "Application of spectral and ARIMA analysis to combined‐ratio patterns", Journal of Risk Finance, Vol. 7 No. 2, pp. 189-214. https://doi.org/10.1108/15265940610648625

Publisher

:

Emerald Group Publishing Limited

Copyright © 2006, Emerald Group Publishing Limited

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